To The Moon

It could be argued that no other company epitomizes the “gig economy” quite like Uber Technologies, Inc ($Uber(UBER)$) does. “Gig” companies offer services often for free to end users, contend with intense competition due to their inherent reproducibility, and have long periods of negative fiscals as they spend their way through successful years on advertising, new service rollouts and promotions to keep their end users engaged.

On the 7th of February, Uber announced its Q4 results that highlighted that the company is nearing a breakout from the red: for the first time since 2018, the company’s net income seemingly registered a decisively positive net income of over $1.4 billion for the entire year of 2023. In an interview with CNBC’s “Squawk Box’ on the same day, CEO Dara Khosrowshahi seemingly attributed some of this to the company’s local teams accounting for the “Taylor Swift Effect” as the singer-songwriter traverses the world in the course of her “Eras Tour”, a 21-month concert tour with 151 shows across five continents.

As it turns out (and as it usually does), there’s more to it than just that.

Trend Studies

Over the years, the company’s business metrics indicate a sense of rising stability:

2021 – and all that came with it – was a transformative year of sorts. While bookings – i.e. “Gross Bookings”, which the company defines as the “total dollar value, including any applicable taxes, tolls, and fees, of Mobility rides; Delivery orders (in each case without any adjustment for consumer discounts and refunds); Driver and Merchant earnings; Driver incentives and Freight Revenue”, without including tips paid – witnessed a pretty sharp uptick in 2020 as well as 2021 without substantially impact the company’s earned revenue. In 2022 and 2023, however, despite lower bookings per trip, the company has been able to unlock higher revenues. In both of these years, the effective take rate (the ratio between averages revenue and booking per trip) witnessed a 8-9% trip over that seen in 2018 through 2021.

This is an interesting phenomenon that largely indicates that the company is essentially spending less in end user incentives that would impact booking value. It’s an indication that the company is likely not working as frenetically as before to retain end user attention. This might be a sign of the company’s business model maturing especially given 1st- and 2nd-order trends which indicate that growth is slowing (1st order) at a rather rapid clip (2nd order).

To better contextualize the company’s fiscal performance in light of this inference over the same period, it’s quite important to recognize and factor out the company’s substantial investments in a variety of similar “gig” companies around the world. These investments keenly affected the company’s net income in different directions over the past two years: in 2022, the revaluation of these investments caused a net pre-tax headwind of $7.0 billion. In 2023, they caused a $1.6 billion net pre-tax benefit.

Note: The effect on net cash due to the settlement of British Value-Added Tax (VAT) charges over the same two years – to the tune of approximately $1.355 billion – is not being reversed.

Overall, the two business metrics’ trends show some sense of positive correlation with one another. These metrics’ trends have little correlation with those seen in net cash and net income, which fluctuate wildly as the company invested in scale-ups, paid out incentives, and so forth. However, it might have all been worth it in the present day: net cash has been positive for the past two years, with the latest year showing a 458% spike. In the same period, free cash flow is up 762%. However, “equity investment-adjusted” net income is down a little over 71% from the last time it was positive, i.e. 2018 although it is up 113% from the net loss in the previous year. This indicates that the company isn’t quite done with contending with competitors and building out new “gig” edges.

The question of “new edges” brings to light Mr. Khosrowshahi comments that he has witnessed the “Taylor Swift Effect” firsthand and a seeming attribution of success to the company. Firstly, success isn’t quite evident in a company which, for all intents and purposes, continues to be deep in the fray. His observance about the “Effect” has, in fact, been showcased in a recent study by Bank of America: in Pittsburgh, household spending in restaurants and bars rose by $77 and $56 during the month a Taylor Swift concert was in town. In contrast, $96 and $74 more were spent in restaurants and bars respectively during the Super Bowl weekend. Miss Swift’s contribution to the local economy has also been noted by the Federal Reserve Bank of Philadelphia, which stated that her tour made May the strongest month for hotel revenue in the city since the onset of the pandemic. With almost 54,000 fans attending each American concert, it has been estimated that a total of $4.6 billion in consumer spending will be generated for the U.S. economy in a year.

The Super Bowl, despite the NFL’s best efforts, has remained a trenchantly American affair. Miss Swift, in contrast, has a global reach with her fans, often labeled “Swifties” flocking to her latest tour, a three-hour-long musical experience featuring 44 songs from the pop star’s career. Apart from purchasing concert tickets, fans are splurging an average of $1,500 on hotel accommodations, food, and travel arrangements. Early estimates place Miss Swift’s latest tour to have an economic impact of $5 billion worldwide, more than the Gross Domestic Product (GDP) of a third of the countries in the world.

Bank of America estimates that post-pandemic “funflation”, i.e. heightened spending on in-person events, can be expected for some time more so such a massive spike in spending is likely not just limited to Miss Swift’s tour but also with other artists. Mr. Khosrowshahi also opined that ensuring increased availability of services to end users during such events won’t be a persistent bump to the company’s fiscals. This is likely because the company’s competitors would also be committing resources to capture increased user traffic at the same time, thereby erasing the company’s advantage in the mid- to long-run.

In Conclusion

All things considered, this is a company still attempting to find growth in new services and methods in an extremely competitive and margin-thin market. Subsequent earnings releases might highlight the increased usage of AI to improve service (entirely logical and replicable by competitors) and even an eventual foray into aerial drone delivery, which will (a) likely run into significant government restrictions for obvious reasons and (b) be a competitor-rich field, thus putting a damper on very high margins.

For broader articles that deep-dives into business and culture in Asia, visit asianomics.substack.com. Recent articles include an examination of rising numbers of Chinese residents buying homes in the U.S. made for Fox Business, an outline of stablecoins’ potential to transform the global FX market made for CoinDesk, and an op-ed regarding Coinbase in 2024 at CoinTelegraph.